Massachusetts Long Term Capital Gain tax on Sale of out of Sate Property

[gong1feng]

I live in Massachusetts and I just sold my real estate property in California in 2020.  When I am working on TurboTax on Massachusetts, it transferred the capital gain from my federal tax over, which includes about $70k gain on the sale of that property.   The problem is, TurboTax won't allow me to edit that sale.  It provides an option to make adjustment for short term capital gains, but not for long term.  So does this mean I have to pay tax on the gain for selling a property out of state?   How do I remove it from the long term capital sale?

Thank you if you you help me out.

Austin

[ErnieS0]

Yes. A Massachusetts resident is taxed on income earned everywhere, so capital gain from the sale of a property in California is taxable to Massachusetts.

MA will give you a credit for tax paid to CA on the sale. TurboTax will automatically prepare this credit for you if you completed your nonresident (California) return before doing your resident state. You'll see this in the section Pay Tax to Another State?

[njlaird]

I sold my rental property in California and paid $55,000 in California taxes.

On my Massachusetts resident return, I have to show the gain and the tax at MA rates is around $35k. However, the credit that Turbo Tax calculate is only $4k because it bases it on Schedule 1 line 10 income which excludes the long-term capital gain. Is this correct and I have to pay income tax in two states on the same transaction.

[RaifH]

No, this is not correct. The credit should be calculated using different numbers. Since MA tax rates are lower than CA, when calculated correctly, the entire $35k you owe to Massachusetts for this sale should be wiped out. You will need to override the TurboTax calculation and manually enter the correct numbers.

To override a calculation, you will need to use TurboTax Desktop:

1. Go to the Credit for Income Taxes Paid to Other Jurisdictions Worksheet in your MA return (Under forms in my return, it appears as Tax Credit Wks)
2. For a credit for capital gains from California, Line 2 on this worksheet should be equal to MA Sch D Line 13.
3. The Line 4 amount on this worksheet should be the same as MA Form 1 Line 24.

For how I came up with these line numbers, see the MA-1 Instructions for Line 30 on Page 14. The rest should calculate correctly, and the entire $35,000 should be credited. To override amounts on this worksheet, you will need to right-click on the Line and select Override. Then enter the appropriate amount. 

Overriding entries will mean that you have to mail in the Massachusetts state return. It also invalidates TurboTax's accuracy guarantee. 

[yuliyauwc]

I'm having the same issue and it's unfortunate that Turbo Tax online doesn't do this. I don't have the desktop version.